The nexus of NextGen
The ‘Great Wealth Transfer’ is no longer coming, it is upon us. The differences between generations have arguably never been bigger, so how do families and their wealth advisors bridge the gap? Citywealth speaks to industry professionals to uncover the key issues, and potential solutions, for connecting with the next generation of UHNW individuals.
The 2023 Family Barometer from Julius Baer in collaboration with PwC Switzerland selects a particular focus on the ‘Rising Generation’. Aged between 18-40, “this generation is ready to take on more responsibility and wants to leave their personal footprint and legacy. We see that, whilst being prepared to do this, they are willing to take bigger risks than their parents and have clear expectations towards the advisors they choose to take on their personal wealth journey.”
The report found that: “Just as the young are disrupting food, media and fashion industries with their changing tastes, so too have they specific ideas about what they want from financial services. As might be expected from a generation that has grown up in a digitalised world with immediate access to all information, they put a greater emphasis on real-time data and cost transparency than the older generation.”
The report covers a range of discussion points on this topic, but the clear, overarching message is that engagement with the younger generations is essential for success, and it is absolutely a case of sooner rather than later.
Mind the gap
In order to connect, we must understand the points of disconnect. Citywealth asked industry professionals, in their experience, what is differentiating the younger generation’s desires and instructions from those of their parents or grandparents?
Alfred Liu, Partner at Forsters, highlighted international mobility as a fundamental difference in the NextGen. He said: “Born and raised, studying and/or working in multiple countries outside of their parents and grandparents’ home jurisdiction results in Next Gen experiences and issues being much more globalised. Transnational marriages raise foreign matrimonial property regime considerations; living overseas makes inherited family wealth susceptible to foreign taxes; exposure to overseas cultures and societal attitudes can lead to younger generations developing values and beliefs about their own children contrary to their parents’. Faced with these cross-border complexities, I find that Next Gens are much more appreciative of the need to take a holistic approach to their wealth and succession planning, and accepting of the associated necessity for professional advice (and costs!).”
Craig Ritchie, Partner at GSB Capital, cited a number of priorities possessed by the NextGen that differentiate them from the generations preceding them: work/life balance, experiences over possessions, active investment involvement, and awareness of their inheritance. On these differences, he said: “Younger generations appear to be prioritising a better work-life balance over traditional career advancement, leading to trends like ‘quiet quitting’ and the Financial Independence Retire Early (FIRE) movement. I’ve had clients take career breaks at ages once considered to be the prime of a career, as well as a wider focus on simply achieving ‘financial independence’ rather than retirement.” Additionally, Ritchie reported “a shift towards valuing experiences over material possessions, seen in the rise of international travel and spending on experiences rather than purely acquiring assets.”
In terms of active investment involvement and awareness of inheritance, Ritchie said: With increased access to information and technology, younger clients are sometimes more inclined to be actively involved in investment decisions, expressing interest in emerging assets like Bitcoin after reading about them online. … I’ve seen an increasing awareness from younger clients that they expect to inherit, and this impacts how they are saving and making lifestyle decisions today. With a huge wealth transfer incoming, there is a need to prepare the next generation properly for this.”
Mark Greer, Managing Director of Giving & Impact at Charities Aid Foundation (CAF), answered from the philanthropic perspective: “For many donors, it’s important to them to create a culture of giving in their family, but different generations are likely to have different approaches and opinions. Younger philanthropists tend to embrace giving while living – more so than previous generations. These younger donors can be focused on results and want to see the impact of their philanthropy in their lifetime. In some cases, younger donors are also more hands-on; they might want to become involved further by using their time, talent and in some cases influence, to further causes, rather than giving purely in monetary terms.”
Greer added: “Significantly, for next generation donors, there has been an expansion of the very definition of philanthropy. It is not a passive venture for them, and they are far more likely to be involved in impact investing or mechanisms which allow them to choose both social or environmental and financial returns. They may put together a portfolio of philanthropic investments – just as they would a portfolio of for-profit investments – marrying a balance of risks with potential social returns.”
Creating connections
These differences between generations are not limited to inter-family relations. Wealth management is an enduring industry, and many of the matriarchs and patriarchs of these wealthy families are ageing alongside their advisors. Increasingly, Citywealth is speaking to industry professionals who are highlighting the fact that there is also a concern that the wealth advisors themselves will also experience disconnect with the younger members of a family they have worked with for years.
In the interest of addressing this, we asked the professionals if they are seeing moves within their companies to prepare to connect their younger professionals with long-standing clients to ease generational transitions and, if so, how?
Alfred Liu said: “I (along with fellow colleagues) am living proof that Forsters Private Wealth team are actively preparing rising stars and junior colleagues to form strong bonds and relationships with well-established client families to reflect their own generational shifts. I started getting involved with such clients early on in my career, and to this day maintain a number of significant client relationships which started as a newly qualified solicitor in 2014. At 4 years’ PQE, I also started regularly travelling to Asia with Forsters partners to help forge new connections with long-standing clients in the region, particularly with their younger generations who have become more involved with their family’s planning and decision-making. So our approach is very much to have our trainees and junior colleagues interacting, and developing close bonds, with clients at every opportunity, so that their family succession journeys mirror our own as their trusted advisers.”
Craig Ritchie said that his personal focus has been examining clients’ wider financial positions. He said: I often have clients with living parents, and wealth will be passed to the next generation. Families can maximise the impact of passing on wealth by having all family members engaged in a coherent financial plan. This is an area that I foresee developing much more over the next few years.”
Mark Greer echoed this focus on open communication, facilitated by the advisor. He said: “We regularly help clients to involve their families in their giving. Our expert advisers often start with a goal setting exercise to work through everyone’s aims and ambitions. As I mentioned earlier, different generations are likely to have different interests so it’s important to be transparent to avoid disputes and encourage collaboration.”
Old news, current concerns
It is worth pausing here to note that this topic is not breaking news. Industry media has been circling and discussing the promise of the ‘Great Wealth Transfer’ for years now. However, now that we have been well and truly swept up in the ‘Transfer’, are there any potential issues or concerns regarding this shift to a new generation of clients that industry professionals feel are not being flagged or discussed enough?
Alfred Liu answered: “There still isn’t enough importance placed on understanding the psychology of Next Gens, particularly scions, and why this is critical when helping families with intergenerational wealth transitions. Younger generations are wealth-inheritors; their experience and relationship with wealth is totally different to their parents or grandparents. The stark contrast always comes out in my Family Business and Governance advisory work. One being how Next Gens commonly want to exert more independence, whereas older generations display more collectivist attitudes for their family, especially those I advise regularly from Confucius cultures. This manifests in a variety of ways; one third-generation client from a prominent British business family decided to invest most of their inherited personal wealth in crypto-assets to distinguish themselves from their parents who view such assets with scepticism. A second-generation client from Hong Kong decided to branch out from their father’s business and set up their own business so they could call something their own.”
Liu emphasised: “Advisers to such multigenerational families must be sensitive to these sorts of deeply ingrained generational differences and be proactive in supporting them to find ways to avoid them boiling over into intrafamily disputes and disharmony that risk fragmenting and dissipating family wealth (there are many high profile and public examples of this!). It’s therefore incumbent on us advisers to help families establish the common ground, identify the potential generational differences and develop constructive and robust ways to bridge the divide.”
Craig Ritchie mentioned the delay to traditional life milestones and commented: Younger individuals delaying major life milestones like marriage and homeownership (not necessarily through choice) is impacting their savings potential and ultimately will shorten their investment time horizons. This trend could lead to challenges in wealth accumulation and compounding over time.”
It seems to be common knowledge within the industry that a significant percentage of the next generation demonstrate a desire to see their wealth extend beyond themselves and have some degree of positive impact on the wider world. However, there is still a bigger conversation to be had about the practicalities of achieving this. Mark Greer said: “The next generation is expected to be the most significant donors in history. CAF research with high-net-worth-individuals showed that more than half of 18-34 year-old HNWIs (57%) and 49% of 35-54 year old HNWIs would like an adviser to help with their philanthropy, yet a survey with financial advisers revealed that almost three-quarters of advisers (72%) do not include philanthropy as part of their initial fact find with clients, which is a massive missed opportunity to build a more in depth understanding of their clients’ values and motivations. Even more concerning, more than one in five advisers do not know how to offer wealthy clients support on becoming philanthropists.”
Final thoughts
Finally, we asked the experts for any concluding thoughts on the overarching event of this enormous transfer of wealth that the industry is overseeing.
Alfred Liu warned against the mistake of reducing the ‘Big Wealth Transfer’ to a one-off event. He explained: “Doing so runs the risk of complacency and can lead to putting in place strategies and frameworks that fail to adapt to macro issues, global geopolitical developments and changing circumstances, which will all impact the manner and timings of a family’s wealth transfer and succession. The ‘transfer’ is more of a ‘process’ than an event. The planning required for families to manage this transition must therefore be dynamic, periodically reviewed and capable of evolution.”
Mark Greer said: Our research found that 42% of advisers plan to increase their knowledge of philanthropy and how to advise clients on it, however 22% don’t know where to signpost clients for the expertise they need. We would like to see philanthropy added to CPD and industry qualifications for financial advisers to ensure that private client advisers are able to better meet the needs of their clients. Forward-thinking advisers looking to provide a holistic service to the next generation would be amiss to ignore this rich topic of engagement.”
Thank you to all of the experts who contributed to this article.
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